Question

A project has an initial cost of $35,000, expected net cash inflows of $8,000 per year for 7 years, and a cost of capital of 11%. What is the project's discounted payback period? (Hint:Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Year	Cash flows	Present value@11%	Cumulative Cash flows
0	(35,000)	(35,000)	(35,000)
1	8000	7207.21	(27792.79)
2	8000	6492.98	(21299.81)
3	8000	5849.53	(15450.28)
4	8000	5269.85	(10180.43)
5	8000	4747.61	(5432.82)
6	8000	4277.13	(1155.69)
7	8000	3853.27	2697.58

Hence discounted Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=6+(1155.69/3853.27)

=6.30 years(Approx).